The UK's Financial Services Authority has fined Knowlden Titlow Financial Services GBP35,000 and Derrick Hales Financial Planning GBP10,500 for failures relating to the sale of geared traded endowment policies.
Financial Services Authority (FSA) claims that these are the first enforcement cases to arise from a targeted program of work by the FSA examining the advice and sales processes of firms recommending geared traded endowment policies.
The FSA identified that Knowlden Titlow failed to ensure that all of its advisers fully understood the policies and their risks before recommending them to customers; gather enough information about its customers to support and ensure the suitability of its recommendations; and adequately explain the risks associated with geared traded endowment polices.
In addition to the fine, Knowlden Titlow has agreed to stop selling geared traded endowment policies and to contact all customers sold potentially unsuitable policies, offering redress where appropriate.
Derrick Hales Financial Planning failed to gather enough information about its customers; communicate clearly to customers the characteristics and risks associated with geared traded endowment polices; ensure advisers properly understood the products they were selling; and did not properly review sales.
Derrick Hales Financial Planning has agreed to stop selling these polices, undertake a past business review to identify the extent to which customers may have been given unsuitable advice and, where applicable, assess and make good any loss suffered and to provide further training and compliance support to staff.
The FSA has also cancelled the permission of both Derrick Hales and Kathleen Hales to perform the role of compliance officer and the role of partner, respectively, as they both failed to act with due care and diligence in ensuring that Derrick Hales Financial Planning complied with FSA rules and principles.
Jonathan Phelan, head of retail enforcement at FSA, said: Geared traded endowment policies are complex investments. We found with both firms that their advisers did not understand how these products work, nor could they show us they had a clear grasp of the risks involved. This made it impossible for them to properly advise customers whether the policies were suitable for them.